Add to this social media mix, the traditional media – TV, print, radio and billboards and you have some difficult decisions to make.

Where should I invest to generate maximum awareness for minimum cost? and How will I know whether these investments are paying off?

Deciphering the impact of advertising is notoriously difficult, there is a classic saying in advertising circles attributed to the father of advertising, John Wanamaker who said:

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

Awareness advertising is designed to widen the pool of potential customers and remind them of how you can help them. The goal is to position a company’s brand favorably and regularly in the customer’s mind.

The measurement challenge comes from the fact that it is not necessarily designed to elicit an immediate response. Regardless there are a few ways you can get a handle on the impact of this type of advertising:

1. Prospect Surveys Before and After Comparisons

This technique involves establishing a baseline and then comparing results against that baseline over time.

For example, a simple survey may highlight that 10% of prospects have heard of your brand and 15% may consider you as a potential supplier of the product. The consideration metric is an important one to include as we are not interested in awareness alone. We really want to know whether we are in the “evoked set” – the top 2 or 3 brands customers have as top of mind for any particular product category.

Asking these questions again in 3 months may reveal that now 25% of prospects have heard of your brand and 30% of them would consider you as a potential provider.

You can reasonably conclude that your advertising activities were a significant driver responsible for the increase.

2. Asking Customers at their Point of Inquiry

Many companies will ask a new customer how they heard of the company or product. This is a great technique for companies that get a lot of inbound calls, a quick question can be asked at the end of the call to which most customers are happy to respond.

To go a little deeper a survey can be conducted asking customers which specific media they remember seeing. Their answers won’t tell you whether the activity influenced their purchase, but it will tell you which of your awareness advertising activities are being noticed.

To understand the advertising’s influence, we can design questions to elicit feedback on the messages sent.

For example “which of the following ads have you seen?, which haven’t you seen?, rank each on a scale of 1 to 5 on whether it appealed to you or not.

Next total up the answers from all survey takers to give you a clear picture of how people perceive your advertising.

NOTE: Where ever possible please do some of this in pre-testing to make sure you are eliciting the response you want!

Making deliberate efforts to improve the customer experience can require significant investments. So how do you decide on which customer experience investments to make?

It begins by understanding the existing customer experience for a defined group of customers and asking the following questions:

1. What does the customer journey for purchasing our products look like? In other words where do customers generally begin to investigate solutions for the problems we solve? What process do they go through and where does it end?

For example: I really need a new TV so I begin my search online, I look at manufacturer’s websites, I look at Amazon to get ratings on different models and I may go down to Best Buy to take a look in person. I may chat with friends, ask questions on forums and read professional reviews. This is the search phase.

Once I have decided on the product, I need to decide how to purchase it. In today’s world I have a myriad of options, multiple retailers both in store and online. This is the purchasing phase.

When I make my purchase the product is then delivered and I can ether set it up or have it installed. This is the installation/setup phase.

Once I have the product up and running I can watch TV and hopefully it meets my expectations on the things important to me when I made the purchase decision. This is the usage phase.

If all goes well no problem, but if there is a technical problem with the TV what then? This is a real test for the supplier, how will they respond to a technical issue, how will I be treated. This is the product failure phase.

After a number of years I will feel a urge to upgrade or add another TV and the cycle begins again. This is the disposal and repurchase phase.

2. What are the most important interaction points we have with these customers? In other words where do we have the most influence?

By examining these interaction points we can evaluate how we perform versus our competitors. For example in the search phase above we need to understand which factors have the largest influence on our customer’s purchase decisions? How important is the brand, how about word of mouth, magazine reviews, our website etc.

Once we understand the levers we need to understand how we are performing on those levers. Are we perceived as a stronger brand? Do we offer more ways to purchase? Is our website clearer and easier to use?

Making the investment decision:

Once we have a clear picture of how customers buy, what influences them and how we perform on those factors we can make a more informed decision by asking the questions:

1. Are we losing business because we are not performing well in some element of the search phase?

2. Is there an opportunity to differentiate ourselves in a meaningful way during the search phase?

This process can be applied to each part of the customer’s journey. Some investments need to be made to keep up with the competition, whereas others will be opportunities to create a differential advantage.

All of these decisions will ultimately be made in the context of the organization’s overall vision, mission and strategy. In other words price leaders will generally only be interested in keeping up with the basic expectations of customers when it comes to the overall experience. As their customers want the lowest price they don’t expect much more. Companies with a product leadership strategy will be looking to provide high level experiences that complement their premium quality, innovative products.

One of the greatest challenges for customer experience executives is gaining buy-in for investments in improving the customer experience.

Customer experience can seem like a never ending intangible problem that is too hard to deal with given the necessity to focus on driving quarterly numbers.

Unfortunately the result is like driving a car as fast as you can until its empty, at some point the car runs out of fuel and it is crisis time. For a business this means losing customers and losing the ability to attract them back to the business without significant price concession leading to lower profitability.

Creating a customer centric culture is a capability building process for the organization; it is the ongoing improvement and refinement of value for its customers.

So what does this mean for gaining buy-in? Ultimately the leadership needs to buy-in to the idea that shaping the culture in a way that is customer centric is the only way to ensure a legacy for themselves and the company. In short executives with a short-term view will never prioritize culture change as they are already thinking about their next role. Why train for a marathon when you are only running a 5k?

For those executives with a longer-term view, here are 3 ways to get buy-in

1. Link the Customer Experience Strategy to Corporate Strategy and the bottom line

The executive team and the CEO are ultimately responsible for driving profitable growth and return for investors. The corporate strategy for most firms involves growth. Where does that growth come from? Customers.

A customer experience strategy that results in customers staying with the company for longer, buying more and newer products, becoming advocates and reducing the cost to serve will drive growth. If customer experience professionals can show how the customer experience strategy will drive these things they will get executive buy-in.

2. Define the Cost of Quality

What is the impact to the organization of poor customer experience and quality?

I recently ran a session in Chicago on Strategic Return on Marketing Investment (ROMI) and one of the questions that came up during the session was related to defending the marketing budget with the CFO.

If you were asked the question, what would be the impact on marketing’s results if we cut your budget by 25%, would you have an answer?

This is a key challenge for marketers everywhere, what is the value of marketing and what if we just stop doing it?

Without a strong understanding of the underlying financial drivers of marketing there is no way to answer the first question with anything other than an opinion. But in today’s world that’s not enough we need facts and data to support those opinions no matter how challenging that maybe.

In the case of defending our budgets to the CFO this is even more important as CFOs like facts and data and more to the point they like numbers.

Step 1: Positioning Marketing Investments in CFO terms.

CFOs understand return on investment, margins, discount cash flows, risk and can even deal with probabilities as long as the probability is for a positive ROI and profit!

This means you need metrics that CFOs understand. They are typically outcome related metrics that tie closely with revenues and profits. What if I can’t tie my marketing activities to revenue or profits? Then keep trying, if there really is no way to link them to these metrics then you have to ask why the activities are necessary at all.

Even investments in advertising and awareness building can be at least correlated with movements in sales and revenues. Do the research necessary to understand these relationships, it will give you the insights, expertise and confidence to answer the tough questions.

Step 2. Measure, test and learn from every marketing activity

CFO’s understand risk. If you can demonstrate the processes marketing uses to measure its key investments, manage risk by testing and demonstrate how you close the loop with key learnings it will demystify marketing.

Step 3. Leverage the CFO

CFO’s have their own unique functional expertise that can add new perspectives on marketing. They look at the world in a different way, see different things. Involve the CFO and their team in the marketing process and you will build a collaborative rather than combative relationship that will benefit both parties.

At the most basic level calculating the lifetime value of customers can be done using some assumptions and a simple spreadsheet like the one below:

In the above example I have used a yoga studio as an example with 100 customers in its first year. To keep things simple I have not leveraged all the data for the calculations but you can draw a couple of key points from the data:

Firstly – The lifetime value of a customer to a yoga studio can be very significant, the average customer in this example is spending almost $2.5k over a four year period! Understanding this bigger picture allows us to make better decisions about the value and importance of even a single customer to our business.

Secondly -Acquisition costs a usually higher than retention costs, in this example it costs a full 100% more to acquire a customer than to retain one. The economics demonstrate the value of customer retention. Of course this will vary from business to business but regardless this is an important data point to understand.

Calculating your own lifetime value of customers

The key inputs relate to estimating the probabilities of the impact of our sales and marketing activities on customer acquisition and retention.We then marry this with some hard data, i.e, the costs associated with these activities.

So what information do we need to begin the analysis?

1. What is the average revenue (spend) and gross margin per customer?

2. What does it cost to acquire a new customer for the first time?

3. What does it cost to retain a customer each year?

4. How often do customers purchase in a given year?

5. How many customers do you have right now and how many do you gain and lose each year?

Note: For this example I did not use a discount rate but as a side note we should be accounting for the time value of money. In other words a dollar today is worth more than a dollar in a year or 5 years time.

This is a simple business concept that is not necessarily that widely known. Intuitively we understand that customers that are loyal and keep coming back are the heart of business. However when was the last time you quantified this value? When you take a look at the numbers if becomes clear that managing customers as real assets is a powerful way to grow profitably.

Take the following chart for example:

You can see that if you provide a product or service with real tangible value to customers they will not only buy more from you but tell everyone they know to buy more from you. They also tend to be more interested in other products and services you offer. Plus as they become familiar with you it costs you less to service their business as they know how you operate.

The very best modern example of this on a mass scale is Apple, customers are attracted by the iPod, transition to an iPhone and or an iPad then get interested in a Mac computer… a virtuous cycle that has seen Apple’s revenue and profit grow exponentially over the past 5 years with no signs of slowing.

In the next post we will take a look at how you can calculate this for yourself.